Change is among the mainstays of the global economy, and any business owner must know what it takes to keep up.
Although most people are aware of the two main features, which are recession and inflation There is much more. In addition, stagflation is among the top worries for economists.
It is extremely uncommon and due to its static nature , established businesses aren’t directly affected. However, startups however, could encounter difficulties when navigating the stagflation crisis.
This blog will help you comprehend the current economic situation and the best way to sustain your business should this happen.
What is Stagflation What does it mean?
According to economists that when the economy is stagnant or even in recession for long periods and there is a possibility of an increase in inflation, it’s known as Economic Stagflation. This is due to the an increase in inflation and rising unemployment.
The term “Stagflation” was invented in the 1970s in reference to a situation that has high unemployment and inflation rates.
For this period commodity demand has not been all that high. It’s a major influence on central banks around the world as well as that of US Federal Reserve.
Although the Fed typically boosts economic activity through lowering internet prices however, these measures will only impact negatively impact inflation and, theoretically, push it to a higher level during this period. This can lead to the losing clients which is why they will resort to lower rates however in reality.
How Can Stagflation Affect a Business?
This is known for leaving companies in a state of crisis and the situation becomes more difficult for small-scale businesses. In normal circumstances businesses would be able to increase its costs, but remain assured and competitive. Instead, companies remain at peace as their rivals are experiencing similar problems.
The cost increase means that everything is now prohibitive. In the end, many people will lose their jobs, and those that were retained by the company will not get a fair increase.
Some employees may decide to pursue better paying jobs that could assist them in coping with the dramatic rise in cost. This leads to an unending cycle of shortage of workers and a decrease in customers.
Once the fundamentals of your business are laid out, let’s figure out the way your company will be dealing with Stagflation.
Tips to Navigate Stagflation
It is impossible to stand still in such a time and hope to not suffer negative consequences. Particularly, if you’re an entrepreneur with a small size that is a small business, you should take careful actions during stagflationto ensure that your business does not suffer significant losses.
If you’re thinking about ” how to navigate the stagflation” The following suggestions are great ways to handle the issue.
- Cut Costs in Your Businesses
Because prices are higher during economic times, you must attempt to reduce expenses as much as you can. So, your total budget won’t be affected. Your team and you can answer have questions, such as:
- Are you able to get discounts when buying in large quantities?
- Do you know of ways that can be used to cut down on the logistics cost?
- How much energy do you need to reduce without impacting your productivity?
These are only a few examples of cost-cutting strategies that are available based on your company’s needs. But, make sure you’re making informed decisions , and not just randomly cutting the amount of money you allocate to different areas of your business.
- Boost Quality
It is normal for businesses to increase the cost of their products and services in times of economic inflation or inflation. However, if you’re just willing to increase the price without offering anything additional the customers will go elsewhere.
Thus, it will be helpful by focusing to improve the standard of your services and products to make them worth the cost you charge. Be aware that convincing your customers that you’re bringing something new and better is more important.
To ensure that this strategy is effective it is essential to have a solid marketing plans in addition.
- Use Investing Strategies
In addition to decreasing costs and asking for more from your customers You can also take advantage of the stagflation process itself. Make investments in channels that work well in these economic times and attempt to raise cash to pay the growing cost of your expenses.
Strategies for investing that can aid you in this situation include:
- Remaining with values and cyclical stocks
- Implementing the “barbell” method
- Stay clear of growth stocks
- Look for “price-setting”
Stagflation is a constant threat. It is simpler if you are involved in these as soon as you realize that the market has slowed.
- Becoming a Landlord
If your company’s revenue is likely to fall, stagflation can raise rents. Therefore, if you own any properties now is the time to capitalize them through renting them. If not, think about purchasing properties that may even comprise the building that your business operates in.
The benefit of following this suggestion is that you can continue renting your property even after the economic circumstances have stabilized. So, you’ll be able to keep a steady flow of money to expand your company, making it more prepared to the possibility of battling the stagflation waters in the future.
- Improve Productivity
Another approach to combating the issue of stagflation is to increase the efficiency of your business without increasing the cost of your business. For example, you could automatize your process or purchase the equipment you need and figure out ways to make more quickly in less time.
- Make Most of Currency Deprecation
Similar to inflation, stagflation also affects the domestic currency in a negative manner.
If you mainly sell goods and services, a decline in currency value will increase sales because it would give an offer to your customers. If you buy products internationally, a variety of situations can occur based on the way your vendors bill you.
The best way to deal with this dilemma is to seek assistance from experts in foreign exchange. Numerous online options like the Currency Club, are readily available on the market. They offer solutions for risk management in foreign exchange, management, international payments and so on. Your business will be well-prepared for all kinds of economic emergencies.
- Tightening Account Receivable and Payable
In such a scenario it is important to make money more quickly and spend it at a slower rate. This is why you need reduce the amount of late account receivables and inquire with the vendors to determine if you have the longest time frame to pay. This can improve your cash flowand give you more security during difficult times.
- Keep an Emergency Fund
Although economic trends can be predicted similar to weather conditions but no one knows precisely when they will happen. Therefore, it’s prudent to be prepared for the worst if the situation is secure situation.
An emergency Expenses fund is not only there to aid you with dealing with inflation but you could also utilize it for other situations too.
How much do you need to include in your emergency funds?
Experts suggest that you have enough money to run your company for 6 months at a time. Additionally, you should review the money you’ve got each year following the creation of an estimate of your budget for your business.
Conclusion
The fact that stagflation was not a common phenomenon to be happening during the past decade isn’t a reason to rule out the possibility of occurring. As the global economy shifts the possibility is that some countries have experienced the effects of stagflation firsthand.
Instead of relying on desperate measures to deal with the situation, consider this blog as a guide. It will help you navigate through stagflation more easily and will help you prepare for any eventuality.
